When it comes to financial planning, the Bucket Strategy has gained significant popularity for its practicality and effectiveness, but the intermediate bucket doesn’t get enough attention in my opinion. The Bucket Strategy involves dividing your savings into three buckets: short term, intermediate term, and long term. While the short and long-term buckets are widely recognized and often talked about, the intermediate bucket often goes unnoticed and underappreciated. In this blog post, we will shed light on the importance of the intermediate bucket and how it can serve as a smart foundational layer for building wealth.
Understanding the Three Buckets:
Before delving into the significance of the intermediate bucket, let’s briefly recap the three buckets of the Bucket Strategy. The short-term bucket is meant to house your emergency fund and any cash you require for goals within the next two years. On the other hand, the long-term bucket is dedicated to goals that are ten or more years away, such as retirement planning.
The Forgotten Middle Ground:
The intermediate bucket is the often-overlooked middle ground, encompassing goals that fall within the 2 to 10-year timeframe. These may include saving for a down payment on a house, funding a child’s education, planning a dream vacation, or any other significant financial goal you anticipate in the near future.
Let’s say you have a goal to enter a work-optional lifestyle by the time you are 48 years old. Envision it: sleeping til 9am, coffee in bed while catching up on news, getting a workout and healthy breakfast in, perhaps meeting up with a friend for lunch followed by a couple hours of working on your passion project before picking the kids up from school or before cooking supper and planning your next vacation.
What money will you live off of? You cannot access your retirement accounts without incurring a penalty, and managing multiple rentals is not only a job but also incurs a lot of costs along the way.
Pro-Tip: The most efficient way to fund your work-optional lifestyle is to start and regularly contribute to a non-retirement account aka a brokerage account aka the intermediate bucket.
Challenges of Managing Intermediate Goals:
Allocating funds for intermediate goals can be challenging. Keeping these funds idle in a savings account or cash equivalent means missing out on potential growth and returns. Conversely, investing them in long-term investments could expose you to higher risks or penalties if you need to access the funds sooner than expected. Thus, the intermediate bucket serves as a practical solution for managing these goals effectively.
Putting Your Money to Work:
To optimize your intermediate-term savings, it is advisable to place them in a non-retirement investment account with a balanced portfolio. A balanced portfolio typically consists of a mix of equity and fixed-income investments, offering a blend of growth potential and stability. This approach allows your money to work for you, generating returns that can contribute towards achieving your intermediate goals.
The account itself can be solely in your name or in a joint account with your spouse.
Examples of Intermediate Goals:
The beauty of the intermediate bucket lies in its versatility and adaptability to individual aspirations. Perhaps you dream of retiring early, or you envision purchasing a beach home for your family. It could be that you want to save up for your newborn baby’s private elementary school or embark on a new chapter in your life by moving to your dream city in five years. Whatever your goal may be, automating your savings towards the intermediate bucket lays a strong foundation for your financial success.
The Benefits of Automating Savings:
Automation is a powerful tool when it comes to achieving financial goals. By setting up automatic contributions to your intermediate bucket, you ensure consistent savings without the temptation to spend the money elsewhere. Automated savings also create a sense of discipline and help you maintain a structured approach to your financial journey.
So remember, while the short and long-term buckets of the Bucket Strategy receive significant attention, it is crucial not to overlook the importance of the intermediate bucket. By allocating your savings strategically and automating contributions towards intermediate goals, you create a solid foundation for building wealth and realizing your dreams within a realistic timeframe. Don’t let your intermediate goals go unnoticed—embrace the power of the intermediate bucket and take control of your (more near) financial future.
For more on how to set up your own personal Bucket Strategy (and other basic financial planning pro-tips), grab my free 5-Step Roadmap Towards Building a Solid Wealth Foundation here.
This blog post was written on 6/21/23 by Danielle G. Nava, CFP®
Disclosure: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.